Get out the tissues, because break-ups are on the rise in Silicon Valley.
As some of Silicon Valley s more seasoned tech companies continue to age, they re spinning off younger businesses or newer technologies, creating smaller and more focused enterprises, according to a new report by PricewaterhouseCoopers. In the last three weeks of the quarter, eBay, HP, JDSU and Symantec all announced plans to split their enterprises, for the most part, right down the middle. In most cases, this is considered a good thing: the size and complexity of many of the more big technology players had stifled innovation and agility, threatening their ability to compete. Now, with PayPal and eBay separate, the hope is the both companies will perform better on their own.
As large as they are it makes them very difficult to grow as quickly and they need to attract the investors they want, so that s why we re seeing them break up, Sebastian DiGrande, senior partner and leader of at the Boston Consulting Group s West Coast Technology, Media and Telecommunications Practice, said on a recent call with reporters. What we re seeing is a fundamental restructuring of the industry.
But courtship in the valley is alive and well, with acquisitions in the tech world on the rise. Tech titans such as Yahoo and Facebook are acquiring startups for the new talent and technology.
In all, last quarter the tech sector saw 64 transactions totaling $30.1 billion, with the average deal value hitting $470 million, a 19 percent increase from $396 million in the second quarter. There were eight deals in excess of $1 billion during the third quarter, a slight increase compared to an average of six per quarter during the last 12 months. Those big-dollar deals included Facebook s acquisition of Oculus Rift ($2.3 billion), Priceline s grab of OpenTable ($2.6 billion) and Apple s purchase of Beats ($3 billion), which closed in the third quarter.
Our third-quarter analysis sets 2014 at a pace to become the second most active year in technology deals since the last major recession, Rob Fisher, PwC s U.S. technology industry deals leader, said in a statement. The recent surge in spin-off activity reflects the urgency of technology majors who are actively weighing their strategic options to compete in a future that requires agility alongside innovation.
The software sector saw the most activity, with 20 transactions closed with an aggregate deal value of $4.5 billion, including Zillow s notable $3.5 billion acquisition of Trulia. IT service companies posted the priciest transactions – 8 deals that totaled $8 billion.
This trend of companies splitting and merging is expected to continue as the tech industry matures and goes through growing pains.
More value can be unlocked by breaking up companies that have high value businesses, DiGrande said. We re still very much at the front end of the transformation of this industry and there s a lot more to go.
